eli5 phone companies: How do they make money when you upgrade and trade-in your phone?

Question

If I upgrade my phone and it costs $500 (billed spread over 3 years) and I trade-in my old phone and get $500 credit, spread over 3 years, how is the phone company making any money? What am I missing?

In: 3

Answer 1

Either you have a new contract and are now stuck with the carrier or you are paying for that phone on an installment plan. And they have you hooked – you’re paying off that phone or you’re sent to collections and take a ding on your credit.

That trade in credit? That’s only good if you’re in “good standing” – making payments on time.

Miss payments and the bill will come due.